This month we will take a deeper look at our investment in Takeaway.com (“Takeaway”). Our thesis provides a good illustration of what Somar looks for in a long investment:
- Order of magnitude growth opportunity driven by material improvements to the available customer value proposition
- Highly attractive and defensible business model
- Capable and strongly aligned management team
Takeaway is a leading food delivery marketplace in Central Europe, with core operations in the Netherlands, Germany, Austria, Belgium and Poland. In these markets, it offers consumers access to large number of local restaurants covering a wide range of cuisine types. Consumers search from each restaurant’s menu and place an order. This order is processed by Takeaway and, if a valid address and payment are behind it, is transmitted to the restaurant that cooks and delivers the meal. For some restaurants that don’t offer delivery, and are important for customers, the company handles the delivery itself for an additional fee.
Takeaway has a simple business model, taking a low double digit to mid-teen percentage commission of all the orders through its marketplace.
We see an opportunity for Takeaway to grow to more than 5x its current size due to its superior value proposition to both consumers and restaurants coupled with its still low penetration of its target markets.
In its markets, Takeaway provides a step-change improvement to the consumer and restaurant value proposition vs. the status quo:
- Consumers have significantly higher number of restaurant choices and added convenience vs. the alternative of phoning the order in. Prior to the launch of online ordering, most delivery orders came from Pizza chains. Through updated online menus and ratings, Takeaway expanded this into a wide range of cuisine types and restaurants. The marketplace intermediation also saves consumers from repeatedly typing their address and payment credentials, a process both time consuming and prone to errors. Consumers are voting with their wallets and are increasing their order frequency (Fig. 1)
- Delivery orders are highly accretive for restaurants from a financial point of view. With limited additional investment needed, restaurants benefit from additional revenues with contribution margins ranging from 30% to 60%. Despite the continual addition of new restaurants to the platform, each individual restaurant is seeing increased demand from Takeaway every year (Fig. 2)
Despite these advantages, and the strong 30%+ annual growth in orders of recent years, only about 12.5% of the food delivery market is intermediated by Takeaway or one of its online competitors providing a vast opportunity for growth for the years ahead.
- On Takeaway’s core markets we estimate about Eur 12 Bn of restaurant orders are delivered per year. Currently Takeaway delivers only Eur 1.5 Bn of these
- The delivery market is growing above GDP as more consumers look for the convenience and time savings of not having to cook and do dishes at home
- Somar’s interview with customers shows that the more cuisine and restaurant options are available and the more convenient (no repeat input of address and payment details) it is to order the more often they tend to order further expanding the overall market potential.
- These numbers also exclude the corporate catering market, a significant additional opportunity that Takeaway is also pursuing by leveraging its recent acquisition of 10Bis.
Highly attractive and defensible business model
The food delivery marketplace is a winner-take-most industry making it a very attractive business for leaders
- Like most marketplace businesses, food delivery benefits from strong network economies (Fig. 3)
- Competitive behavior is also benevolent: once a clear leader is established in a market, non-leading players prefer to sell their operations and focus on other markets where they can achieve leading positions rather than continue to invest in that market (Table 1)
The business is also very defensible with extremely low churn rates, even for non-leading players. Once a customer has ordered from a food delivery marketplace for at least 3 times, they tend to stick with that marketplace. This means that orders from each cohort of customers tend to accumulate year after year (Fig. 4). Therefore, competition tends to focus on acquiring new customers that previously were using phone for delivery rather than stealing customers from other online competitors.
Orders per cohort
These cumulative orders come at extremely high 50%+ (pre-marketing) operating margins yielding a 100%+ return on invested capital for the business. This is a very low capital-intensive business.
- Negative working capital: the marketplace collects from customers daily while paying to restaurants 1 to 2 times per month
- Low capex: the business fixed costs are mostly limited to building and maintaining the marketplace website and app
Capable and aligned management team
Takeaway is owned and managed by two entrepreneurs and industry pioneers:
- Jitse Groen founded Takeaway in 2000 and has been its CEO ever since. He is one of the industry pioneers and still owns more than 34% of the company. In its home market of the Netherlands, Jitse built Takeaway into one of the most dominant players in the world with a virtual monopoly and EBITDA margins well over 50% in its home market.
- Joerg Gerbig founded Lieferando.de in 2009 and built it into a leading player in both Germany and Poland. Upon the sale of the business to Takeaway, Joerg chose to stay as COO and to roll part of the sales proceeds into stock of Takeaway
- Both Jitse and Joerg are best-in-class operators having developed the “one company” approach for increased efficiency in operations and customer acquisition
- Dingle global technology platform to be used in all operations around the world
- Unified brand in each market to maximize efficiency of brand campaigns
- Centralized back-office functions
- Simultaneous roll-out of innovation initiatives
Upon underwriting this position, Somar assessed the investment to have minimal downside under an adverse scenario while offering at least a 5x potential under our base scenario.
- Our base scenario represents our best assessment of what the company can deliver. In our judgement there is a 50% probability the company will beat our base scenario and an equal 50% probability it will fall short of it. In general terms we assumed Takeaway keeps its dominance in the Netherlands and achieves half of the penetration and success in both Germany and Poland.
- Our adverse scenario assumes that Takeaway continues its lead (but not dominance) in the Netherlands and fails to achieve leadership and significant probability in Germany and Poland.
- The most common path for food marketplaces that don’t achieve leadership is their sale to the local leader (please see Table 1 above). The extremely low customer churn makes these businesses an attractive stream of cash-flows with strong accretive value for the leader. In our adverse scenario we didn’t assume any potential sale of subscale operations in Germany and Poland.
There are a lot of risks that we track continuously to make sure our thesis is on track: increase in competitive intensity, change in consumer preferences, change in restaurant preferences, increasing customer acquisition costs, reduced marketplace relevance for consumers (number of orders per consumer) and restaurants (number of orders per restaurant). We use our primary research to confirm our thesis and, so far, have seen increased support for our thesis from the incoming data.
 Through their subsidiary Scoober. Takeaway believes this part of the business will be breakeven and responsible for up to 5% of total orders.
 Netherlands, Germany, Poland, Austria and Belgium
 Marketing expense is discretionary and almost entirely to acquire new cohort of customers
 Collectively Jitse Groen and Joerg Gerbig own more than 36% of Takeaway.com
 A strong data point in support of this is Hungryhouse whose sale to Just Eat took about 1 year to be approved by the UK’s competition authority, and during this time, despite low marketing investment, they barely lost any customers during the period.